Tuesday, January 3, 2012

Overnight and Continuing Repurchase Agreements?

The New York Fed reports overnight and continuing repurchase agreements.

What are continuing repurchase agreements?

Continuing contracts resemble a series of overnight repos; they are renewed each day with the repo rate or the amount of funds invested adjusted to reflect prevailing market conditions. If, for example, the market value of the securities being held as collateral were to fall below an agreed-upon level, the borrower would be asked to return funds or provide additional securities. Continuing contracts usually may be terminated on demand by either party

Continuing contracts usually may be terminated on demand by either party.

Sounds a bit like a demand deposit.

What are the figures?

First, the amount of overnight and continuing repurchase agreements was vast. Nearly $3 trillion. In 2008, the amount of "official" checkable deposits was $600 billion. MZM, the broadest measure of the money supply was about $8 trillion. The overnight and continuing repurchase agreements, which were not counted in any measure of the quantity of money would make up over 25 percent of an aggregate that includes them. (Of course, to the degree this represents lending by commercial banks or money market mutual funds, there would be double counting. )

And, of course, the more important point is that it dropped by nearly $900 billion during 2008. While MZM rose by approximately $1 trillion, the uncounted money almost completely offset that change.

And then, there is the overnight commercial paper. Where are those figures?

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